Australian Agricultural Company
has launched a feasibility study for a $50 million abattoir in the Northern Territory but managing director
David Farley
said it could take up to two years to establish the facility, which would take advantage of increased slaughter demand following Indonesian import restrictions.

Indonesia, Australia’s biggest live cattle importer, is seeking to become a self-sufficient cattle producer by 2014 and is restricting imports of cattle weighing more than 350 kilograms to create local demand for its feedlots.

The restrictions have affected AAco, which sells about 90 per cent of its cattle held for live export to Indonesia, as well as exporters including AWB’s Landmark and Elders, which blamed the downturn in Indonesian demand for part of its poor trading performance this year.

Paul Holmes à Court’s Heytesbury company will see its live export sales to Indonesia fall by about 25 per cent to about 30,000 head of cattle.

Mr Holmes à Court said the net price for heavier cattle had dropped about 40 per cent.

“The unintended consequences of the Indonesians introducing weight restrictions is that it has pushed down the value of cattle that are over 350 kilograms and pushed up the value of cattle under 350 kilograms."

Last year Australia exported more than 700,000 head of live cattle to Indonesia with a value of $476 million. It is unclear how many of those were heavier cattle. While representing a large slice of AAco’s live exports, it accounts for 20 per cent of cattle sales.

AAco was able to sell much of its heavier cattle before Indonesia clamped down on the restriction. But Mr Farley believes a northern abattoir is a key part of its plans to become an integrated producer, processor and marketer.

Related Quotes

Company Profile

He said engineers were completing a feasibility study to determine its design and location.

Linwar Securities analyst Mark Wade said AAco could generate an additional $12 million to $15 million in income if it opened an abattoir, as it benefited from reduced freight costs and improved prices.

AAco trucks between 40,000 and 50,000 head of cattle from northern to southern Australia for processing. Mr Farley said the combination of lower domestic cattle prices and freight costs meant AAco was only “breaking even" on older, heavier cows that could no longer be exported to Indonesia.

“It’s the classic example of the gatekeeper [abattoir owner] running his asset to suit himself," Mr Farley said. “There is a big supply of cattle coming at them. But rather than you saying please process my cow, they are saying no you sell me the cow and I’ll process it. So they are capturing the margin."

Mr Farley said he had government support for the plant, which would be developed under a co-operative model that would let AAco share the costs. But abattoirs can be risky. They are low-margin operations reliant on consistent supply.

“An abattoir in the NT seems sensible provided an adequate return on capital employed can be achieved over the entire year, not just during the peak production period," Mr Wade said.

Prominent cattleman and former AAco director Peter Hughes said demand was growing and producers had become more efficient.

“There is a lot more opportunity to run them through the seasons now."

But he said demand for the abattoir could fall if import restrictions to Indonesia were lifted as producers took advantage of higher export prices.

A Department of Foreign Affairs and Trade spokesperson said the government was concerned about the Indonesian import restrictions and that Australian embassy officials in Jakarta were making “representations to underline Australia’s capacity to supply quality, disease-free cattle and boxed beef".